Lift The Millstone of Student Debt That’s Slowing The Economy

May 14, 2013

Isaiah J. Poole

Do you think that student loan debt is only a problem for college students and perhaps their parents? Think again.

The escalation of student loan debt in the past decade is a millstone around the neck of the entire economy, and you are touched by its effects. Especially if you or someone you know has had a hard time finding a job or selling a home, part of what you are experiencing is the effect that escalating college costs, combined with the weak employment and income prospects of college graduates, is having on the economy.

During 2012, the amount of outstanding student loan debt in the country topped $1 trillion threshold, exceeding all types of consumer debt but housing. Just since 2003, the percentage of 25-year-olds and over with student loan debt increased from 25 percent to 43 percent, and the average loan balances have increased by more than 90 percent in that time, to $20,326.

Two government reports in the past month have raised the alarm about what that student-loan debt burden is doing to the economy as a whole.

The Federal Reserve Bank of New York released a report that included some stunning details. One of the most startling: Home-ownership rates among 30-year-olds with college debt dropped twice as fast during the Great Recession and afterward as did those without student loans. As a consequence, today 30-year-olds without a student loan, including those who have not attended college, for the first time in at least a decade are more likely to have a mortgage than those who are carrying a student loan. The trend lines are similar for car buyers.

A Consumer Financial Protection Bureau report released last week highlighted similar findings. “Generally, high student debt burdens limit borrowers’ ability to take on new financial obligations,” the report said. “Younger consumers have increasingly shied away from forming new households,” are finding themselves hindered in starting up new businesses, and are choosing to avoid such professions as teaching or primary care medicine, where pay is not high enough to enable them to pay down their loans.

This rising student loan debt is directly related to sharp increases in college tuition well in excess of inflation and a 25-year-low in state and local spending on college education. Robert Reich, former secretary of labor during the Clinton administration, recently compared student loan debt to the housing crisis, predicting that it is a bubble that will soon burst.

Similarly, economist Joseph E. Stiglitz described college debt as “a crisis that is about to break out” in a column in The New York Times posted Sunday night. “Like the housing crisis that preceded it, this crisis is intimately connected to America’s soaring inequality, and how, as Americans on the bottom rungs of the ladder strive to climb up, they are inevitably pulled down — some to a point even lower than where they began,” he wrote.

College debt is the insult that adds to the injury that this economy is doing to people under 30. For 53 straight months the unemployment rate for 18-29 year olds has remained above 10 percent. Debt-ridden and either jobless or underemployed, too many of America’s youth are delaying once routine rites of passage: becoming first-time home buyers, getting married, saving for retirement and purchasing a car. In an economy where no one is spending, businesses have no incentive to invest and grow, reinforcing the downward cycle. It has prompted talk that for many people college no longer provides a positive return on investment. The only people profiting in the end are the lenders themselves, having used their political muscle to keep these loans from being refinanced or forgiven under certain circumstances.

Stiglitz points out that “America is distinctive among advanced industrialized countries in the burden it places on students and their parents for financing higher education.” And he warns that the price the country will pay for not emulating countries that consider higher education a national investment rather than a personal privilege.

Without more help from the government, students and the economy will continue to flounder in the face of bleak opportunity. Warren’s bill to lock in the same rock-bottom interest rates – 0.75 percent – for students that big banks receive is only one slice of what has to be a comprehensive plan to rebuild the economy so that it works for all of the young people trying to grab onto and climb the economic ladder. But it is an eminently reasonable key step. Sign here to support her bill and lift this millstone that is burdening the economy.

The government may stay open, but the fight continues against a GOP budget that wants to cut close to $3 trillion over 10 years from services for lower-income households to pay for tax cuts for the wealthy. The people say "Not one penny."

The Trump presidency, like a monster hurricane, is doing unprecedented damage to our democracy and to our progress toward being a nation that is more equitable and fair.

About Isaiah J. Poole

Isaiah J. Poole is communications director of People's Action, and has been the editor of OurFuture.org since 2007. Previously he worked for 25 years in mainstream media, most recently at Congressional Quarterly, where he covered congressional leadership and tracked major bills through Congress. Most of his journalism experience has been in Washington as both a reporter and an editor on topics ranging from presidential politics to pop culture. His work has put him at the front lines of ideological battles between progressives and conservatives. He also served as a founding member of the Washington Association of Black Journalists and the National Lesbian and Gay Journalists Association.